Good governance a stimulus for trade in Middle East

Governance in Middle-Eastern and North African countries is a major factor in their businesses’ ability to trade and participate in the global economy. The quality of institutions correlates with the export performance of companies, as shown by the latest FEMISE report (FEM41-08).

After analyzing the knowhow and constraints of companies located in the Middle East and North Africa, the report goes on to examine the case of Egyptian companies, looking at the obstacles impeding their performance.

The third part of the report, coordinated by economics professor Inmaculada Martínez-Zarzoso, underlines the importance of governance in the companies’ ability to export or import.As part of the ambitious study, the FEMISE economists looked at bilateral exports between 189 trading partners and 19 exporting countries between 1996 and 2013. It transpires that, while democracy and well-functioning institutions are a prerequisite, the business environment not only has an influence on productivity, but also has an effect on the performance of the economy as a whole. Both the trading environment and the institutional framework impact corporate performance and the country’s economic vitality.

The importance of consistent governance in facilitating trade

The study shows that, in the wake of the Arab Spring, new criteria came to the fore. Thus, invoicing and accounting are seen as determining factors in boosting exports.

The business world needs a stable environment, especially where property rights are concerned. Respect for the rule of law, fighting against corruption and an efficient administration boost business relations. Furthermore, two countries with similar governance will see a positive effect on their export levels.

“Similar regulations and the rule of law boost exports in the Middle East. Policies aimed at freeing up trade could therefore be targeted at trading partners with similar norms of governance,” the document states, adding that each of the six governance indicators has a positive impact on bilateral trade.

For more on this timely subject, please download the report available here.